Tag Archives: China

With gold and silver rebounding, today acclaimed money manager Stephen Leeb told King World News that silver is now setting up to eclipse $100. Leeb believes that China, which has been the primary driver in the gold market, is now going to push the silver price over $100 as their consumption of physical silver is poised to skyrocket. Here is what Leeb had to say in this powerful and exclusive interview.

Leeb: “We are seeing massive demand for photovoltaics out of both Japan and China. We are also continuing to see massive demand for silver in the Middle-East for this type of energy infrastructure as well. Eric, KWN readers need to understand that the demand for silver is literally set to explode because of the enormous increases in demand for physical silver because of photovoltaics….

“While all of this is happening, the mainstream media is saying that China is about ready to fall apart. But the reality is that China plans to urbanize a remarkable 200 million people over the next 10 to 15 years. Well, the cost is roughly $50,000 per person. So China is going to be spending a massive amount of money for materials — copper, lead, zinc and especially silver.

The global crisis is a financial crisis driven primarily by global trade and capital imbalances; and Hinde Capital believes the crisis is in full swing again and asset prices are in danger of falling globally. Money is less effective at catching the falling knife. Investors and policymakers do not believe this is the beginning of a major EM contagion crisis. They are lulling themselves into a false sense of security. They see the EM market tremors, and do not fear a re-run of the EM crises of old. They are right. This is not (just) going to be an EM crisis. The disproportionate reaction of central bankers and policymakers alike has merely succeeded in compounding and exacerbating the error of this highly imbalanced monetary system.Recent events in emerging countries are a manifestation of the continuing unravelling of our monetary order.

Over the past four decades the global economy has largely experienced prolonged imbalances, with countries running large current account deficits in symbiotic relationships with those running large surpluses. In our recent HindeSight Investor Letter – Top of the BoPs (below) – we revisit our long held belief that the current monetary order as defined by a constellation of exchange rate arrangements between the major global currencies, and which maintained these imbalances artificially, has led to excessive global liquidity and credit creation. This in turn drove a litany of asset price bubbles.

The bursting of these asset bubbles has continued in a series these past two decades, each one’s demise leading to more disruptive policy responses which have only succeeded in igniting yet more bubbles, only for those too to fail.

Finally in 2008 we witnessed the finale of decades of credit creation, rising in what appeared to be a crescendo of credit excess and widespread asset booms. We saw this event as the death throes of an unstable monetary regime, only then to see an unprecedented global reaction by policymakers in a coordinated fashion to keep the global system alive. For a moment here today, there are those who dare to believe they have succeeded, with rising equity markets a testimony to a reviving global economy. Nothing could be further from reality.

We stand by our assessment that the disproportionate reaction of central bankers and policymakers alike has merely succeeded in compounding and exacerbating the error of this highly imbalanced monetary system. Recent events in emerging countries are a manifestation of the continuing unravelling of our monetary order.

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In the 1980s it was a hike by the US Fed that triggered the LatAm crisis. Today, the mere whisper of tighter monetary conditions in the US, vis-a-vis a tapering of QE has led to higher bond rates globally. Note tapering is not the same as hiking interest rates.

The consequences of multiple rounds of QE have heightened global risks as it has both exacerbated ‘currency competition’ and hot capital flows into countries seeking desperately for a return both from income and capital growth. This has created major distortions in term rates, equity and bond values, driving them artificially high in price.

These distortions have created risks far greater than the fragilities of EM countries of yesterday years. The system of credit creation has produced unstable growth underpinned with collateral which is both mobile and suspect in its integrity.

Investors have nowhere to turn, emerging market countries growth is faltering in response to export disadvantages brought about by rampant G10 currency devaluations. China is finally succumbing to its side of the global imbalance excesses. First it was the deficit nations now it’s the turn of the creditor nations to falter, primarily China.

Trade flow reversals are leading to massive capital outflows out of EMs and the question remains: will the central banks of these countries sell their FX reserves, UST- bonds and euro government bonds (bunds) to finance this surge in outflows?

It is not clear that renewed global central bank liquidity provision will even stabilise a situation we see as growing dire by the day. China is the driver. All eyes on china.

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We believe the bursting of the ‘Great Bond Bubble’ will lead to a formative and substantial rise in gold as official money, institutional and investor money seeks an asset that can protect us all from a global default and resetting of the monetary order. The time to buy gold is fast approaching, if that time is not already upon us.

On the heels of continued turbulence in key global markets, today 40-year veteran, Robert Fitzwilson, put together another tremendous piece. Fitzwilson, who is founder of The Portola Group, discussed a financial hurricane, cracks in the global monetary system, and what this all means for investors. Below is Fitzwilson’s outstanding and exclusive piece for KWN.

Fitzwilson: “This is from ‘Rhyme Of the Ancient Mariner’ by Samuel Taylor Coleridge:

This literary piece is describing the ordeal of a ship and it’s crew trapped in a part of the ocean called the Doldrums. The area is a low-pressure zone in the vicinity of the Equator where sailors experienced squalls, thunderstorms and even hurricanes….

“As Coleridge’s words describe, however, it is more commonly known for trapping sail-powered boats in windless seas for days and weeks at a time. As defined by Merriam-Webster, the term doldrums can indicate despondency, listlessness, as well as stagnation, inactivity or slump.

We must say that the word doldrums has come to mind in recent months. While there have been dramatic and historic movements in just about every asset class, there have been no resolutions to the innumerable economic, financial and political problems we face. Europe, China, Japan and the United States have all made attempts to break out of their doldrums, only to encounter a lack of effect (no velocity of money, no inflation) or hurricanes (worst bond market in 50 years, historic decline in the Dollar, and tumbling equity markets). It is easy in this type of environment for investors to become confused and even despondent.

We wrote some time ago about a type of volcanic eruption described as “Plinian”. A Plinian eruption shoots gas and particulates high into the atmosphere in the form of a column. At some altitude, the weight of the column is too much, and it collapses. As the material reaches ground level, it spreads at tremendous speed. This was the eruption of Mt. Vesuvius in 79 A.D. While the column was rising, the initial terror wore off for the observers as they watched it climb higher and higher. Most did not flee and paid for their complacency with their lives.

As we watch the spasms in the various markets, we know it represents that something is terribly amiss. The geopolitical, economic and financial complexities comprise a chaotic system. By definition, it is impossible to predict the events that will lead to resolution. History is our best guide, but even that cannot help us with the timing of those events. The Romans could not time the collapse of the volcanic column, and nobody can predict the timing of the collapse of our current financial eruptions.